Patrick McKenzie

Introduction

Welcome to the new year! It is a time for new beginnings and for your business to plan and execute on goals for the future. It is also the time to deal with your tax obligations, so that you can quickly refocus your attention on higher priority goals.

In general, companies that were open at any point during the previous calendar year probably have tax filing obligations for that year. Stripe Atlas has built tools to help founders navigate these obligations. We know that taxes are stressful and something which most entrepreneurs do not consider themselves experts on, so to save entrepreneurs anxiety (and eliminate a major reason why people don’t go into business in the first place), we have set out to make the process better. We wrote a guide to U.S. business taxes. Companies which incorporated with us can connect to an accountant for advice about their corporate income tax and pay their Delaware franchise tax.

Your tax season is likely to include the following steps, in order:

Gather data about your business

Consult with your accountant, on the basis of the data

Review the return(s) prepared by your accountant

Submit the return(s) and pay any required tax

Tax filings you need to make

Delaware corporations generally need to file returns for:

U.S. federal income tax

the Delaware state franchise tax for corporations or annual fee for LLCs

Depending on circumstances, some companies may have state income tax filing obligations. Founders of U.S. companies may personally have federal and/or state income tax obligations, or tax obligations outside the U.S., especially if they lived or worked outside of the U.S.

If you incorporated your company using Stripe Atlas, we will be happy to introduce you to experienced startup accountants to help advise with regards to your U.S. federal income tax return and other U.S. tax obligations. If you lived or worked outside the U.S., you should also engage a local accountant regarding the tax issues in your other jurisdiction(s).

Before you speak to an accountant

Accountants are, effectively, the engineers of money. Just like engineers don’t spend most of their time typing in data, accountants generally do not personally do the underlying recordkeeping and math which supports tax returns. This is generally done by bookkeepers or by entrepreneurs using bookkeeping software. (More on the difference between these two functions.) Your accountants will generally not be able to start working on filing your taxes until your books are prepared and your financial statements are finalized.

Your accountants will want your financial statements, specifically:

general ledger: a list of all transactions for the corporation

balance sheet: a summary of what the company owns and owes

income statement: a calculation of profit (or loss)

Your general ledger (sometimes described colloquially, with supporting documentations, as your “books”) is a list of transactions your business has made. Your ledger will be prepared by your bookkeeper on the basis of primary evidence such as receipts, invoices, credit card statements, and the like. Each transaction will generally be associated with a day, an amount, the two accounts involved in the transaction, a category, and a brief description of what the transaction was. Businesses may have only a few dozen ledger entries per month or millions, depending on the level of activity in the business and choices they make regarding recordkeeping granularity.

The balance sheet and income statement are summary documents prepared, generally by software, on the basis of your ledger.

A balance sheet lists your assets and liabilities at the start and end of the tax year. It will look something like this:

Asset

At start of year

At end of year

Cash

$500

$500

Checking account

$18,000

$37,000

...

...

...

Total Assets

$27,000

$45,000

Liability

At start of year

At end of year

Accounts payable

$3,600

$2,300

Unearned income

$12,000

$24,000

...

...

...

Total Liabilities

$20,000

$35,000

Shareholder equity

$7,000

$10,000

You will get your balance sheet from the bookkeeping software you (or your bookkeeper) uses. Your accountant will use it extensively in preparing your corporate income tax return(s) and, additionally, your total assets will be used to calculate your Delaware franchise taxes.

A fun fact about balance sheets: a company’s shareholder equity will always be the difference between its total assets and its total liabilities. (This is interesting as an accounting matter, but in startups, the value of a company on its balance sheet generally bears no relationship to how it is valued by investors.)

Your income statement (also known as the profit and loss statement or P&L) simply sums your revenue, expenses, and income (revenue minus expenses) for the year, broken down into coarse categories. It will look something like this:

Revenue type

Amount

SaaS subscriptions

$75,000

Total Revenue

$75,000

Expense type

Amount

Software

$5,000

Hosting

$10,000

...

..

Total Expenses

$40,000

Net Income

$35,000

You will also get your company’s income statement from your bookkeeping software.

Federal corporate income tax

The first step in working with your accountants to prepare your federal corporate income tax return will be providing them with data, including your financial statements. This will help them drill into ambiguities or places where they need additional information, advise you on the correct tax positions to take, and ultimately prepare your return correctly.

Stripe Atlas can recommend an accounting firm appropriate for your business from among our hand-picked providers. If you work with other accountants, they will advise you what information they need and what format they expect to get it in.

You should expect to be asked about:

who owns the company and in what percentages

where does the company have physical operations

what are the main lines of business the company operates

does the corporation have depreciating assets

The cost of preparing your taxes will depend on a variety of factors, including whether your financial statements are complete, whether your records are well-organized, what level of complexity your business is exposed to, and the degree to which special circumstances expose you to additional reporting requirements.

Stripe Atlas has negotiated a range of packages appropriate to your business’ circumstances. We can get a better price for better services because we can negotiate volume pricing with our partners and allow our partners to specialize in only the parts of tax compliance which are relevant to most internet companies.

Your corporate taxes filing and payment are due on April 15th each year. If you have an LLC that is treated as a partnership for tax purposes, your taxes filing and payment are due on March 15th.

The gross assets that Delaware requires you use for this calculation are listed on Schedule L of your form 1120, and they’re sourced off of your company’s balance sheet.

Your initial number of authorized shares and par value of shares was set at incorporation; if you haven’t done anything to change these, Stripe Atlas can remind you of what they were.

You need to check your records or speak with your professional advisors to see how many shares have been issued. If you used Stripe Atlas’ tool to issue your founder stock, we can help you find how many shares you signed documents to issue to the founders. (As a reminder, founders must purchase their shares to finalize the issuance.)

Companies incorporated using Stripe Atlas will generally owe the minimum tax which is presently $450 ($400 for franchise taxes using the Assumed Par Value method and $50 for the annual report filing fee) per year.

Your franchise tax filing and annual report, and the payment for them, is due by March 1st each year.

LLCs formed using Stripe Atlas will generally pay an annual Delaware LLC tax of $300, which is due on June 1st of each year. We will connect you with one of our partners if you need assistance with paying your LLC tax.

Need help?

We are not accountants and we can’t give tax advice, but we’re happy to help Stripe Atlas companies with an introduction to qualified accountants. Drop us a line at atlas@stripe.com or ask your question on our forums.

This guide is not intended to and does not constitute legal or tax advice, recommendations, mediation or counseling under any circumstance. This guide and your use thereof does not create an attorney-client relationship with Stripe, Orrick, or PwC. The guide solely represents the thoughts of the author and is neither endorsed by nor does it necessarily reflect Orrick's belief. Orrick does not warrant or guarantee the accurateness, completeness, adequacy or currency of the information in the guide. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular problem.